The Hindu Business Line : Aggressive pricing may help L&T to compete with MNCs

Larsen & Toubro has made its presence felt in the super critical power equipment segment with its first 800 MW turbine order . L&T received an Rs 1,557-crore order for 2x800 MW steam turbine generator from the Andhra Pradesh Power Development Company (APPDCL).

The company outbid BHEL to win this order. The steam turbine generators will be supplied by L&T-MHI Turbine Generators, a joint venture between L&T and Mitsubishi Heavy Industries, Japan.

Aggressive pricing

The order assumes significance at a time when even the more established player BHEL has not been very successful in this segment so far. The current order showcases L&T aggressive pricing strategy to penetrate the space. This strategy may be essential for L&T to not only outbid BHEL but more importantly to compete against overseas players such as the Chinese and Koreans, known for their low pricing strategies.

However, as L&T is yet to fully put up a plant for power equipment, components for the current set of orders it receives may have to be sourced from the Japanese partner. This could mean that the joint venture may incur relatively higher costs until L&T’s domestic plant starts manufacture.

With an aggressive pricing strategy and high costs, the profit margins in this segment may be muted for now.

Given the long gestation periods for power projects, revenues from the business are also not likely to show up significantly before FY 2011.

At a time when a number of power projects are fraught with delays in execution, the key challenge for L&T would be to deliver this order on time as it may serve as a reference point for bagging future orders.

L&T is once again competing with BHEL for the boiler order in the same project, the bids for which are likely to be opened on July 4.

This tender could be a key challenge for L&T as BHEL has always remained competitive in boiler pricing.

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